On 4 June 2026, the Australian Energy Market Commission (AEMC) published a draft determination and draft rule in response to two rule change requests from Grids Energy Pty Ltd(proponent), that have been consolidated. The requests together focus on contingency Frequency Control Ancillary Services (FCAS) arrangements for power system stability after disturbances. They are:

ERC0359 - Optimising contingency size in dispatch

ERC0360 - Allocating contingency FCAS costs.

The draft rule, which is a more preferable rule, seeks to:

• formalise the requirement for the Australian Energy Market Operator (AEMO) to use reasonable endeavours to co-optimise the size of the largest credible contingency, in central dispatch
• require AEMO to set out in the constraint formulation guidelines how it will perform co-optimisation of the largest credible contingency
• introduce a requirement for AEMO to report on the instances in which contingency size co-optimisation constraints are applied and, where applicable, AEMO's assessment of the impact of co-optimisation in maximising the value of spot market trade.

Stakeholder submissions to the draft determination are due on 16 July 2026.  

The draft rule formalises arrangements to co-optimise the size of the largest credible contingency

AEMO currently co-optimises the size of the largest credible contingency in dispatch, under the circumstances set out in AEMO's constraint formulation guidelines. AEMO undertakes this practice in accordance with its requirement under NER clause 3.4.1(a) to maximise the value of spot market trade.

While the Commission considers that improvements to the design of co-optimisation constraints could theoretically improve FCAS price efficiency within the NEM:

• the benefit from expanding AEMO's current approach to optimising the largest credible contingency is likely to be small and concentrated in limited intervals, with limited benefits to be realised beyond what is already occurring through existing practices
• there are material implementation costs and risk considerations associated with the development of new constraints, particularly in the context of other reforms currently underway
• there is uncertainty as to whether market efficiency could be improved over time by expanding the use of co-optimisation constraints.

The Commission considers that the draft rule is a proportionate and targeted response to the issues raised by stakeholders, clarifying AEMO’s requirement to co-optimise, while preserving AEMO’s operational discretion and, providing the necessary transparency to market participants, allowing for continuous improvement of co-optimisation practices over time.  

The Commission has also decided not to make any changes to the existing cost recovery arrangements at this time.  

The Commission considered the merits of more cost‑reflective recovery arrangements that seek to improve incentives for participants to consider the capacity size of their investments on the volume of contingency FCAS procured, including the runway and alternative cost recovery approaches. However, on balance, the Commission considers that, in practice, such reforms would be complex to implement and are unlikely to produce material benefits for consumers.

The Commission has decided to consolidate the two rule change requests

On 4 June 2026, the Commission consolidated the two requests from the proponent due to their shared subject matter and common objective - to improve the NEM’s contingency FCAS frameworks.

Background and context  

Contingency FCAS maintains power system frequency stability following disturbances, such as the unplanned loss of a generator, load, or network element, known as contingency events. These services respond rapidly to correct the imbalance in active power caused by such events, arresting frequency deviations and restoring system frequency to approximately 50 Hz.

The volume of contingency FCAS procured in each dispatch interval is primarily determined by the size of the largest credible contingency. The NEM dispatch engine (NEMDE) determines dispatch outcomes by co‑optimising energy and FCAS bids to meet demand at least cost while maintaining system security. However, under current arrangements, the size of the largest credible contingency is typically treated as an input to the dispatch process rather than a variable that can be adjusted to improve overall efficiency (i.e. co-optimised).

The costs for the procurement of this FCAS are allocated to generators and loads for raise and lower services respectively in proportion to their total energy generated or consumed.